Cain Company and Abel Corporation Have the Following Income Statements

question 69

Multiple Choice

Cain Company and Abel Corporation have the following income statements for the current year: $$\begin{array} { l r r } & \text { Cain Company } & \text { Abel Corporation } \\\hline \text { Sales } & \$ 50,000 & \$ 50,000 \\\text { Variable expenses } & 10,000 & 25,000 \\\text { Contribution margin } & \$ 40,000 & \$ 25,000 \\\text { Fixed expenses } & 25,000 & 10,000 \\\text { Operating income } & \$ 15,000 & \$ 15,000\end{array}$$ What is the degree of operating leverage for Cain Company for the current year?

• A)2.667
• B)0.375
• C)1.667
• D)1.250

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Definitions:

Public Good

A product or service that is made available to all members of a society, typically funded by the government, and characterized by non-excludability and non-rivalry.

External Cost

represents a negative spillover effect of an economic transaction on a third party who was not involved in the transaction.

External Costs

Costs that are not borne by the parties involved in economic transactions but are imposed on others, such as environmental pollution.

External Benefits

Advantages that accrue to individuals or society indirectly participating in an economic transaction or activity.